My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

My rule is to avoid getting involved in financial discussions with friends or relatives except in very general terms ("this is what we do ...") -- and only if they bring it up. It is hard to stand by and watch. You might just buy her a book on the subject and leave it at that. She's and adult.

When you discover that you are riding a dead horse, the best strategy is to dismount.

You can't help those that don't want to help themselves. If the illustration showing how this 1.4% will cost her 30+% of her total money by the time she turns 70 then nothing will convince her to want to help herself.

Also people are very afraid of turning away from deals at the very last second. The fact that she has gone this far almost certainly means she has made a decision that she wont back out from.

My guess: the percentages don't work on her because it's a personal factor. She's had enough conversation with this guy that she feels comfortable with him and committed to him, and maybe she feels like it would be awkward to back out now. If so, your thinking that she shouldn't feel like this won't change her feelings. (You didn't actually use the phrase "dumb idea" to her, did you?)

And even if she does do it now, that doesn't mean she's going to stay with this advisor forever; maybe she'll leave in a year, or five. It's not like she's eloping to a foreign country with a villain and the only way you can save her is to intervene now. Back off, let her know you'd love to talk about this more with her sometime if she's interested, and let her make her own decisions.

My rule is to avoid getting involved in financial discussions with friends or relatives except in very general terms ("this is what we do ...") -- and only if they bring it up. It is hard to stand by and watch. You might just buy her a book on the subject and leave it at that. She's and adult.

That is what I did for my brother and sister. I mailed them copies of The Coffeehouse Investor, I think the book is an excellent book for a beginner investor.I mailed them the book after our father had distributed some of his estate. I asked them to read it, then I would help them set up a simple account at Vanguard, with low expense mutual funds.

When I called them, after allowing sufficient time for them to read the book, both had bought very high expense, front-loaded mutual funds from the bank where my sister was an employee.

I felt bad for them, but I honestly had tried to help them. The books cost little, their activities cost them many times more.

You simply cannot help those who will not accept the offered help.

Good luck with your efforts to help your sister.

Broken Man 1999

“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

I think it is often extraordinarily difficult to get neophyte investors to believe they can handle their own investments and to understand the impact of high fees.

Everything they have been exposed to implies investing is something smart professionals handle for neophytes. They see TV ads, print ads, they probably know someone who lost money in the market. Their 401k plan often comes with an advisor. They simply can't fathom the idea of managing it on their own. They fear making mistakes and losing money, and relying on an advisor relieves them of that fear.

You can try but there are people who just aren't willing to do something they believe to be fraught with danger when they know the friendly advisor with multiple sets of initials after their name is ready and willing to take care of it all.

And don't worry about it. She is doing better than most, in that she has set aside money to invest, and she is doing something better than throwing darts to invest it. For decades, the kind of relationship she is about to start with her advisor was pretty much the gold standard.

Sure, she can do better. Also she can eat better and exercise more. Do you nag her about that?

1. It's her money, not yours.
2. If she listens to your advice and the market has a hiccup, do you want to burn your relationship with her?
3. She's a newbie to investing and this stuff takes baby steps. - Look at Taylor, he did not get his first real, professional job and decide to start the 3-fund portfolio... His story has many lessons learned

This is BH, so we totally get where you're coming from. At the end of the day, it's better that she's investing somewhere than keeping the money in the bank or CDs. Obviously 1.4% fee is outrageous to us, but we cannot save everybody.

My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

I know where you are coming from. I just got together for dinner with a group of female friends (all in their 50s and 60s). Most of them are retired and someone mentioned their "investment guy" and everyone started singing the praises of their particular financial advisor. I was the only DIY investor in the group! I commented that it isn't complicated if you stick with index funds, but it fell on deaf ears. Their response was "well you are good with numbers; I couldn't do that!" I left it at that - discretion IS the better part of valor!

Don't try to convince her please. It can backfire very easily and then you can be blamed. I had a similar situation with a co-worker. It's just not worth it. Buy her a book on the subject and leave it at that if you want to help her.

From needing help to DIY is too big a leap for her. You need to help her find a better advisor. When you see someone robbing your sister, don't stand there. Say something. Do something.

I agree but personal finances is a very different animal. God forbid he recommends a different advisor or a DIY approach and Mr. Market decides the bull run has run its course. I don't know his sister but if she's ignorant as to how markets work, she will blame him.

From needing help to DIY is too big a leap for her. You need to help her find a better advisor. When you see someone robbing your sister, don't stand there. Say something. Do something.

I agree but personal finances is a very different animal. God forbid he recommends a different advisor or a DIY approach and Mr. Market decides the bull run has run its course. I don't know his sister but if she's ignorant as to how markets work, she will blame him.

Family is different than just coworkers. I will take the blame to save my sister.

There is no reason to pay 1.4%. Why not get her to have a managed account, but just much much cheaper?

These are all examples I used but she just doesn't get it. It's frustrating.

Maybe she would understand that Vanguard's expert advisors will do this for $300 and her guy down the street will use the exact same funds for $1400. If she is willing to pay a local guy to do this for an extra $1100 every single year vs Vanguard's experts then that is her choice. The problem is that percents don't always translate to dollars. If she is willing to pay $1100 extra every single year vs a service provided by Vanguard's advisors directly then she has made her choice and I would drop it.

I'm pretty sure she will want to leave the advisor in the next bull bear market. Will the advisor be able to keep her calm and look at the big picture? If he can, he will be worth the money he gets. If he can't, then she'll probably ask you (maria) for suggestions.

edit: Thanks below for the catch, JW.

Last edited by celia on Fri Oct 06, 2017 2:39 am, edited 2 times in total.

Here's an idea I just thought...
1. Would your sister be interested in the Vanguard Target Retirement 20XX funds on the basis that Vanguard already professionally manages the asset allocation (effectively what said financial adviser is doing)?

At about 0.15% ER.... she would be spending $150 per year versus $1400 backed by the second largest mutual fund house in the industry with some $4+ trillion dollars invested.

My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

Do we have the same sister! My sister asked for my help as her divorce was concluding and her share of DH's(divorced husband) 401k and pension were soon to be hers. I told her that I would come over and set everything up at Vanguard. A few months later I asked her when she needed my help. She looked surprised and told me she had a guy who she met at her son's baseball game invest it for her. Ameriprise got another customer.

My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

I think you did your part trying to inform your sister. You are both competent adults, you run your finances your way and your sister will have to run her finances her way. Until she asks for your advice, there isn't much else you can do. So just wish her the best.

My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

Your sister likes the financial advisor.
You sister trusts the financial advisor.
Getting involved would be like sitting between a rock and a hard place.
Difficult.
Better to preserve the family relationship than press too hard if she already has her mind made up.

Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

I think I understand this. The guy in the nice suit has a fancy office with some kind of educational credential in a very nice frame and is very polite and professional. They must know some things that my stupid brother/sister doesn't that will make it worth the AUM fee. Been there, done that.....

I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Yes she did ask me for input, which is why I don't understand why she won't take my advice. Anyhow, I tried explaining to her, I tried doing a graph showing all the fees with the advisor vs without, she still won't budge. I give up. I guess her advisor will be enjoying her money every year sipping on margaritas in the Bahamas

I think I understand this. The guy in the nice suit has a fancy office with some kind of educational credential in a very nice frame and is very polite and professional. They must know some things that my stupid brother/sister doesn't that will make it worth the AUM fee. Been there, done that.....

The guy in the nice suit might have a nice smile, blue eyes and is handsome. It works....for those who go for that type of bait.

Yes she did ask me for input, which is why I don't understand why she won't take my advice. Anyhow, I tried explaining to her, I tried doing a graph showing all the fees with the advisor vs without, she still won't budge. I give up. I guess her advisor will be enjoying her money every year sipping on margaritas in the Bahamas

It doesn't have to be "every year".

Keep track, privately, of how a general "market" indicator has been doing.
Perhaps in a year or two or five, you can compare notes.

It's not like she's paying a huge load or, worse, getting all sorts of bad annuities (I hope!).
If she realizes how she could do better in a few years, and makes changes, she's done well, and you'll have helped.
And if she somehow lucked out with an advisor having a "lucky streak", so be it.

My sister has $100k to invest and has an appointment tomorrow to wrap up the paperwork with a financial advisor who promised her a portfolio of Vanguard ETFs that he will balance for her, for a small fee of 1.4%! I told her to run and just open up an account herself on Vanguard and do it herself. I even recommended if she didn't want the inconvenience of rebalancing to just get an all in one fund. I tried explaining to her the amount in fees over the long term but she just keeps saying it's worth it because the advisor can build a good portfolio and do it all for her. How can I convince her it's a dumb idea to go with him? She's 50, and is a beginner in investing.

A few years back, I told my sister to open a Roth IRA (good advice) with one of Janus's hot shot funds (rank bad advice). She followed my advice. Suffice it to say that our portfolios mirrored each other all the way into the crater.

Now she is married and has a financial adviser. I will be the last person in the world asking her to fire the dude!!

That's quite the fee. 1% AUM is more standard. She's overpaying by 40% to market. Maybe that's made up for by lower cost Vanguard funds?

Has the advisor shown her exactly what she'd put in and what the balance would be targeted at? I bet it's very similar (if it's being done well) to what Vanguard would do under their 0.3% personal advisory service. Perhaps she might look at those side by side and decide if what the advisor is offering is worth 4 times as much.

But it's not your money and you can/should do only so much. Not worth a drag-down fight or "I told you sos".

Yes, Vanguard Personal Advisory Services (minimum investment $50,000 - a kind of "robo-advisor" with CFPs involved) is a low-cost alternative and will put a financial plan together for your sister for free and then if she decides to invest in the portfolio they recommend, her costs are only the low costs of the Vanguard funds themselves and the .3% of assets advisory fee (on $100,000, that's $300) - rebalancing a part of it too plus a yearly "review." I did it and found the information valuable but opted to use a 3-fund approach to my tax-deferred account but may use the Advisory Services for my taxable account to take advantage of the tax-loss harvesting feature it offers.

Assume she invests in a silly-simple portfolio of just one fund, Vanguard LifeStrategy Moderate Growth fund, a balanced fund with a 60/40 asset allocation and an expense ratio of 0.14%. That's about as garden-variety as you can get.

If she invests her $100,000 for twenty years, assuming a return of 4% annualized per year (which is what most financial gurus are calling for in the next decade or so and which I doubt her "guy" can beat significantly) it compounds to over $220,000.

If she invests with the advisor, with his added fee of 1.4%, it gets more interesting. Now the fees total 1.54%, and the same investment over the same timeframe compounds to just $164,000. The difference ($220,000 minus $164,000) is $56,000, which goes straight out of her returns and into his pocket.

Is his service worth that to her?

After you tell her this, give her a copy of Professor Bernstein's "If You Can".

Anybody know why there's a 20-pound frozen turkey up in the light grid?